Expensive new deep-level platinum and gold mines cannot be justified, they say

The traditional deep-level mines in SA that absorb hundreds of thousands of jobs are no longer a viable option in platinum and in gold are the end of an era, industry chief executives say.

Speaking at the Joburg Indaba mining conference, Impala Platinum CEO Nico Muller said the move to shallower, less labour-intensive, safer and more cost-efficient mines means there is unlikely to be investment in new shafts going kilometres deep into the earth after the company has completed its two new deep-level mines in the next few years.

Asked at the conference whether Implats would build more shafts that are 2km deep or more, costing up to R20bn over a decade or more, and whether investors would support such an investment, Muller said it was not even up for debate in the company.

The benefits of opencast, mechanised mines simply overshadow deep-level platinum mines, when it comes to safety and the forecasts of cost escalation, particularly for labour, which rises above inflation, and the ability to adopt new technology, which is easier in an open pit, Muller said.

Referring to the shallow mines owned by Anglo American Platinum (Amplats) and Northam Platinum in SA and by Implats in Zimbabwe, he argued there is no way to justify the billions needed to sink another conventional deep-level mine in SA.

“How in 10 to 15 years will conventional shafts compete with those? It’s ludicrous. It won’t happen,” he said.

Harmony Gold CEO Peter Steenkamp was equally blunt about the future of gold mining in SA, which for decades was the largest source of gold on earth, accounting for a peak 1,000 tons in 1970. SA has since fallen to eighth place with production about a quarter of that as the country’s mines have grown older and deeper, with falling grades and productivity and runaway input costs.

Steenkamp said the expectation is that in a decade from now there will just be five gold ore bodies left in SA that would be mined.

“In SA’s gold mining, there are projects to do to extend the life of mines ... but the reality is gold mining is at the end,” he said.

Implats and Lonmin, the number two and three platinum producers in the world, are both cash-strapped after a decade of stagnant platinum prices and profit margins eroded by quickly rising costs of electricity, labour and water. Both are undertaking extensive restructuring exercises.

We’ve got the projects to get really good returns. Luckily they’re not big deep vertical shafts

Chris GriffithAnglo American Platinum CEO

The platinum industry has learnt hard lessons from the mistakes it made a decade ago when it miscalculated the impact of the switch out of platinum in favour of palladium in petrol engine catalysts and the fourfold increase in recycling, continuing to invest in growth for metals that the market just could not absorb, said Anglo American Platinum CEO Chris Griffith.

Amplats believes that the right kind of investment would deliver the right kind of returns in a market where the dollar price of basket of platinum group metals the company produces has risen by 20% so far in 2018 and by 17% in rand terms, he said.

Amplats had returns on shallow, mechanised projects much shorter than the seven to 10 years expected on deep shafts, said Griffith. “We’ve got the projects to get really good returns. Luckily they’re not big deep vertical shafts.”

Lonmin CEO Ben Magara said there had to be consolidation in the platinum sector where large chunks of the industry are unprofitable and need to be incorporated in entities that could make money.

Lonmin is subject to an all-share takeover bid by Sibanye-Stillwater, creating one of the world’s largest producers of platinum group metals behind Amplats.